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Letter to the Editor

Illinois County Court Certifies Class Action Against Geico

The original case was against seven auto insurance companies that used aftermarket parts, said Sheila Carmody, an attorney with Snell & Wilmer who represented Geico in the class-action certification hearing in Madison County, Ill. The case as originally filed was called the Hobbs case, but it is severed and proceeding separately against Allstate, State Farm and Geico, she told BestWire. The other defendants had no Illinois class representatives, although Liberty Mutual--which was part of the original suit--did make a payment to settle the case, she said.

The class-action suit contends that Geico is using non-original equipment manufacturer parts, which result in lower quality for the customers while saving money for the insurance company, Carmody said.

The basic facts of the certification case are that a Geico insured named Pisko received a non-OEM headlamp, Carmody said. The customer didn't complain about the repair, its cost or that it didn't function properly, she said.

Customers have choice, Carmody said. If they don't like the company's performance, they can go to many different insurance carriers, she said. In Pisko's case, he chose to stay with Geico for years after the filing of this case, she said.

"It is Geico's policy that it will deliver high-quality service at the best possible price, and as part of its strategy to keep expenses down and benefit consumers, it uses high quality non-OEM parts in repairing customers cars," Carmody said. "Reducing expenses results in lower premiums, a fact that has been lost in this discussion. It results in savings for consumers and lower premiums."

In January, the Illinois Supreme Court changed its rules on appealing class certification, Laura Kotelman, counsel for the National Association of Independent Insurers, told BestWire. Previously, the defendant would have to wait for the entire case to be ruled on its merits before appealing certification of the class, she said. Now, as soon as a judge certifies the suit as a class action, the defendant--in this case Geico--can appeal that certification, she said.

"Geico may be the first defendants able to use this option to appeal a class action under the new rule," Kotelman said. "The association isn't happy for Geico that it is being sued, but it is good the company can take advantage of this new court rule. In terms of the substance of the case, the association doesn't think the claims in the class are similar enough to justify a class action. This is a case of the judge in one county in Illinois making law for the entire country."

Non-OEM parts weren't a concept that insurance companies invented, Carmody said. The practice came into the market because the cost to produce the part was substantially less than the sales price by the manufacturer, she said. In the early 1990s, the Illinois Department of Insurance held public hearings to discuss aftermarket parts and decided they were appropriate for Illinois constituents, she said. The department put out regulations specifically outlining how these parts would be used for consumers, which Geico has been following, she said.

All parties have benefited from generic auto parts, Kirk Hansen, director of claims for the Alliance of American Insurers, told BestWire. Generic parts help lower the cost of claims, which in turn helps keep down premiums for the coverage, he said. At State Farm, for example, the owners of the insurance company are the policyholders, since it's a mutual insurance company, so anything done to lower costs is a direct benefit for the policyholders/owners, he said. But there are more than 70 similar lawsuits filed across the country on aftermarket auto parts, he said.

Last October, the Illinois Supreme Court agreed to hear State Farm's appeal of a lower court's 1999 decision in the class-action lawsuit Avery vs. State Farm, which awarded the plaintiffs $1.2 billion in damages regarding the use of aftermarket parts. An appellate court lowered the award to $1 billion but let the decision stand.

Many of these generic parts are certified by the Certified Automotive Parts Association, which confirms that the replacement parts are as good or better than the parts used during the original manufacturing, Hansen said. Many times, the factory parts might be made by a subcontractor that is looking more at the initial cost of the vehicle, so the replacement parts might well be held to a higher standard, he said. Tests performed by CAPA have shown the replacement parts have outperformed the parts with Detroit's labels on them consistently, he said.

The class was organized by plaintiffs' lawyers, Carmody said. The lawyers held a meeting with body shop representatives to ask them if there were any dissatisfied customers, but when Geico went to the body shop involved in this case, the shop personnel reported that the customer--Pisko--was not dissatisfied with the service, the repairs or the parts, she said.

As part of the discovery phase of the lawsuit, Geico asked to look at the car involved in the complaint, Carmody said. Geico learned that another part that was replaced in the repair--the hood--on which Geico paid for a manufacturers part to be used, was replaced with a non-OEM part and the body shop never told the company or the customer and didn't return the additional funds, even though the non-OEM hood cost less than the manufacturer's price, she said.

"Interestingly, the body shop also served as an expert witness for the plaintiffs and said they did not like non-OEM parts," Carmody said.

Geico has defended three other cases on non-OEM parts, and in each case the suits were not certified as class actions, Carmody said. One case was in Maryland, one was in Florida and one was in Arizona; the latter never got to the class certification discussion because the judge issued a summary judgement denying the class action and also awarded the company attorneys' fees, she said.

Many such cases were filed in Louisiana, and the insurance companies have continued to win every one of them, Kotelman said. Plaintiffs' attorneys continue to forum shop, and now they're in Madison County, she said. The problem isn't going to go away, but the industry is spending a lot of money to prove its innocence all across the country, she said. The cost of defense is escalating, and in the long run, it's going to cost consumers as well, she said.

"The only winners in these cases are the plaintiffs' lawyers, because all the parties to the suit may get nothing, or may get coupons, or may get pennies on the dollar," Hansen said. "The lawyers get a substantial fee out of the settlement, so this is a golden goose for them."

Most of the activity on aftermarket parts is on hold to await the outcome of the Avery vs. State Farm case in the Illinois Supreme Court, Hansen said. The court should issue a ruling before the end of the year, since the hearing was held May 14 and the court now is considering the matter, he said. Depending on how this case plays out, many of these other cases might disappear, especially if the ruling favors State Farm, he said.

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